Tread Carefully With Rivian Stock Despite Rising Optimism

In recent weeks, Rivian Automotive (NASDAQ:RIVN) has started to make a steady move to higher prices. After hitting a new all-time low during mid-March, during the last few trading days of the month, investors warmed back up to Rivian stock.

This was due to speculation that the electric vehicle (or EV maker) would beat estimates with its delivery and production figures for the quarter ending March 31, 2023. Unfortunately, when the company released actual numbers, instead of unveiling a pleasant surprise, results instead were mixed at best.

That said, RIVN stock only experienced a modest, temporary pullback in price on this news. This may be perhaps due to the fact that, while results last quarter hardly set the world on fire, management hinted that it is still on track with its annual production target.

That said, while the latest news isn’t doing much to curb investor optimism, don’t assume that this will continue.

The Latest With RIVN

Per Rivian’s Apr. 3 deliveries/production release, the company produced 9,395 of its electric trucks and vans, delivering 7,946 of them to customers. While these numbers were in line with expectations, they represented a decline compared to what was reported in the preceding quarter.

Furthermore, as mentioned previously, hopes ran high ahead of the company’s production/deliveries release, and not merely on account of wishful thinking. As InvestorPlace’s Samuel O’Brient reported on March 30, per figures from Kelly Blue book, there were a total of 8,145 Rivian vehicle registrations during the quarter.

The market took this to mean that the company would report a much higher delivery figure. Thus, this explained last week’s uptick for Rivian stock. Still, there are signs that this sequential drop in production may be temporary. Alongside the numbers, management reiterated its 2023 production target (50,000 vehicles).

That’s not all. A major factor behind the production decrease was the company’s pausing of commercial van production in February, in order to integrate new battery technology. With all of this in mind, it makes sense that this news only briefly took the wind out of RIVN’s latest rally.

Why Rivian Stock Remains Vulnerable

This month, Rivian stock may have a strong chance of holding steady in the mid-teens per share. However, this could start to change on May 9. That’s when RIVN next reports quarterly earnings.

Investors are already aware of the production/delivery figures for Q1. The company remains confident in its ability to ramp up production this year. All of this may seem to point to a mixed reaction to earnings. However, another key concern could re-emerge post-earnings – Rivian’s cash burn problem.

As the Wall Street Journal pointed out back in March, Rivian burned through $6.4 billion in cash during 2022, and its cash burn is expected to stay high for several years. Thus, it remains highly probable that this early-stage EV maker will need to sell more shares to raise cash down the road.

Like I’ve argued before, selling additional shares means additional dilution, which will put more pressure on the stock. Not to mention, this action will limit its upside potential in the event Rivian successfully scales up into a profitable enterprise. Dilution worries have fallen to the back burner lately, but may return when the company’s financials are once again in focus.

The Best Move Now

Dilution isn’t the only issue that could screech a possible rebound for RIVN stock to a halt. Concerns about increasing competition may also re-intensify. This upstart may be keeping up relatively well against Ford (NYSE:F), once one of its backers, and now one of its key competitors.

However, it’s not only Ford that Rivian needs to worry about. Other incumbent automakers are moving into the electric pickup truck space. Tesla’s (NASDAQ:TSLA) Cybertruck, if/when it finally starts to roll off the production line, could give Rivian’s R1T a run for its money as well.

In short, there’s still more out there that could push RIVN stock down to new lows, rather than send it back up above $20 per share. That’s not to say you need to stay away entirely.

At the right price, Rivian stock may be worthwhile as a small, speculative position. For now, though, be careful.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.